Stocks tumble from $134 oil, bleak report
NEW YORK » Wall Street pitched lower for the second straight session yesterday as record-high oil prices and a bleak economic assessment from the Federal Reserve deepened investors' worry about rising costs and a shaky employment picture. The Dow Jones industrial average fell 227 points, logging its widest two-day loss since late February.
Early in the day, stocks began falling on the surging price of oil, which shot up more than $4 and breached $134 a barrel for the first time on the futures market yesterday.
The stock market slumped further after minutes from last month's Fed meeting revealed that while policymakers expected sharply lower economic growth and higher unemployment later this year, inflationary risks are likely to keep the central bank from cutting rates again. Lower interest rates spur economic growth, but they also tend to accelerate inflation.
It absolutely underscores the two competing mandates for the Federal Reserve: growth, and price stability. It captures the tug-of-war between the two mandates, crystallizes how different those two mandates are, said Quincy Krosby, chief investment strategist for the Hartford. If employment deteriorates dramatically, the Fed has a choice - do they worry about inflationary pressure, or do they want to continue to support their growth mandate?
The Dow fell 227.49, or 1.77 percent, to 12,601.19, after falling nearly 200 points on Tuesday. The blue chip index's two-day drop of about 427 points, or 3.3 percent, is its biggest since Feb. 28-29.
Broader stock indicators also stumbled. The Standard & Poor's 500 index fell 22.69, or 1.61 percent, to 1,390.71, while the Nasdaq composite index fell 43.99, or 1.77 percent, to 2,456.09. The Russell 2000 index of smaller companies fell 8.53, or 1.16 percent, to 727.11.
Declining issues outnumbered advancers by about 7 to 3 on the New York Stock Exchange, where consolidated volume amounted to 4.41 billion shares, up from 3.74 billion on Tuesday.
Government bond prices rose as investors searched for safer assets. The yield on the 10-year Treasury note, which moves opposite its price, rose to 3.81 percent from 3.78 percent late Tuesday.
Crude oil soared $4.19 to settle at $133.17 a barrel on the New York Mercantile Exchange - about $20 higher than it was at the beginning of May. It passed $134 a barrel in after-hours trading.
The airline industry has been particularly slammed by the rising cost of oil. Citing high fuel prices, American Airlines said yesterday it will start charging $15 for the first checked bag, reduce domestic flights and cut perhaps thousands of jobs. AMR Corp. shares fell $1.98, or 24 percent, to $6.22.
And although jitters over the housing-driven credit crisis have calmed since March, they are far from over. Financial stocks took a hit yesterday after Moody's Investors Service said it is conducting a thorough review regarding the possibility that computer errors incorrectly gave high quality ratings to certain debt securities that later sank in value.
Among the financial services companies in the Dow, Bank of America Corp. fell 76 cents, or 2.2 percent, to $34.63; JPMorgan Chase & Co. fell $1.28, or 2.9 percent, to $42.42; Citigroup Inc. fell $1.05, or 4.8 percent, to $21.06; and American Express Co. fell $1.83, or 3.9 percent, to $45.48.